Panama Noriega's Money Machine

For two days he sat bent toward a microphone under glaring television lights, a small man with gray hair and rimless glasses who could pass for an apothecary. In fact, Jose I. Blandon had been chief political adviser to one of the most corrupt dictators in Latin America, General Manuel Antonio Noriega of Panama. Testifying before a Senate investigative subcommittee last week, Blandon said Noriega and his henchmen had turned Panama into a "criminal empire," a "gigantic machine" that generated hundreds of millions of dollars through drug trafficking, money laundering and gunrunning.

Blandon's disclosures came just days after U.S. grand juries in Tampa and Miami indicted Noriega for conspiring with drug dealers to ship more than 4,000 lbs. of cocaine and more than 1 million lbs. of marijuana to the U.S. through Panama. Noriega, head of the Panama Defense Forces and de facto ruler of the country since 1983, is charged with accepting more than $4.6 million in bribes, most of it from the so-called Medellin cartel of powerful narcotics lords, who are based in Colombia's second largest city.

But the bribes are just the tip of a huge iceberg. Not since the waning days of Philippine President Ferdinand Marcos has a national leader been accused of corruption on such an enormous scale. Before the Senate Subcommittee on Terrorism, Narcotics and International Communications, Blandon alleged that Noriega turned many of Panama's public institutions -- the customs and passport offices, the railroad, the airports -- into a huge kickback scheme. Among the beneficiaries: scores of army officers, top government officials and, above all, Noriega. By Blandon's account, Noriega is the richest man in Panama, with a dozen houses, a fleet of automobiles and net assets of between $200 million and $600 million. "Panama is not in the hands of its political leaders," Blandon said. "It is in the hands of drug traffickers."

Blandon, who was guarded in the hearing room by a squad of U.S. marshals, was placed under federal protection after Noriega dismissed him last month as / Panama's consul general in New York. Two weeks ago he testified before the Miami grand jury. Last week he poured out such a flood of allegations -- many of which were unsupported by documentary evidence -- that Subcommittee Chairman John Kerry, a Massachusetts Democrat, had to ask him to slow down.

The Senators were particularly interested in Blandon's disclosures concerning the relationship Noriega has had with U.S. intelligence officials. Blandon alleged, for instance, that the CIA had supplied Noriega with classified information on his chief Senate critics, including Jesse Helms of North Carolina and Edward Kennedy of Massachusetts. In Kennedy's case, the reports included the Senator's "personal problems," Blandon claimed.

A CIA spokesman said the agency "categorically denies" Blandon's accusation. But Senator Alfonse D'Amato of New York, one of Noriega's bluntest antagonists, said he found Blandon's charges eminently credible. "The fact is," he said, "that Noriega -- this thug and racketeer -- has been on the payroll of the CIA for many years and remained there, I understand, until rather recently."

Blandon dropped another bombshell when he alleged that just before the 1983 U.S. invasion of Grenada, Noriega received a telephone call from Vice President George Bush, who asked him to warn Cuban Leader Fidel Castro not to interfere with the operation. Noriega has long been friendly with the Cuban dictator and has been accused of giving him U.S. intelligence data. Of Blandon's assertion, Bush said, "Hogwash."

Blandon outlined a series of deals and double-deals involving Central American conflicts. In 1985, he said, Noriega met twice in Panama City with Lieut. Colonel Oliver North, a principal figure in the Iran-contra affair. North asked Noriega, Blandon said, to train contra rebels in Panama at a time when the U.S. was forbidden by law to do so. Noriega agreed, Blandon said, though he was at the same time selling arms to Marxist insurgents in El Salvador. North could not be reached for comment.

With the entire 16,000-man Panama Defense Forces at his disposal, Noriega showed little fear of the violent Colombian cocaine barons. His former private pilot Floyd Carlton, who showed up in the hearing room wearing a black hood, told the subcommittee that when the Medellin cartel offered Noriega $30,000 to protect drug flights, the general laughed and asked if they thought he was begging. Carlton said Noriega then demanded, and got, $100,000 in advance for the first flight, $150,000 for the second and $200,000 for the third.

Some of last week's most chilling testimony came from Ramon Milian Rodriguez, who described himself as the former chief financier for the drug cartel. The slim, Cuban-born accountant told how he laundered as much as $200 million a month through Panamanian and overseas banks. A fervent anti- Communist, he said he siphoned funds -- TIME has learned the amount was in the millions -- into secret accounts set up for the Nicaraguan contras. Administration officials have denied knowledge of any such transaction.

For Noriega's role in protecting the money shipments, Rodriguez claimed, the Panamanian general received about $10 million a month from the cartel. "I paid him -- in ball-park figures -- between $320 million and $350 million from 1979 to 1983," Rodriguez testified. In exchange, he maintained, he was given not only the run of Panama's airports and banking system but also the identities of U.S. drug agents and the schedules of U.S. Coast Guard and Navy drug-surveillance vessels. Rodriguez, 36, is now serving 43 years in prison.

Between them, Blandon and Rodriguez detailed a drug-trafficking operation that has spread corruption throughout Central and South America. The latest victim is Honduras, where top army officials are said to have developed close ties with drug dealers. The U.S. fears that the drug lords will undermine Honduras' status as a staging area for the contra war and a future democratic bulwark against Sandinista expansion.

Back in Panama, a defiant Noriega, who celebrated his 50th birthday last week, responded to the mushrooming charges against him with some old-fashioned Yanqui bashing. To the cheers of peasant supporters, he said his struggle with the U.S. was a battle for "national liberation." He suggested that the U.S. Southern Command, which maintains 10,000 troops in Panama, be sent packing. As for Blandon, Noriega dismissed him as a "Benedict Arnold" and a "paranoid."

While Noriega seems firmly entrenched for the moment, the hope among U.S. officials is that his fellow military officers will eventually find him a liability. Nervous investors are said to have withdrawn hundreds of millions from Panamanian banks in recent months, weakening an economy already mired in debt. On March 1, the U.S. State Department is expected to certify that Panama has not done enough in the fight against drugs, a finding that will make the country ineligible for a range of trade and economic privileges. "At some point," says an Administration official, "those in Panama with the ability to change things are going to have to ask themselves if Noriega is worth the price."